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No Longer Taking PayPal, Pay Pal

Someone was kind of enough to alert me to the fact that within the Cheap Phone Sex FAQ was a reference to PayPal. That reference has now been removed.

I continue to get questions from guys asking if I take PayPal. PayPal made an announcement on March 14 of this year that stated that they would no longer allow merchants who sell phone sex to use their services as of May 13, 2003. On May 1st PayPal revised their acceptable use policy (AUP) to state that any merchant who sells ‘Adult Only’ products e.g., memberships, sex toys, adult videos, etc. will no longer be able to process under their program as of June 13, 2003. Which means that PayPal is out of the adult business.

PayPal decided to get out of the adult business for I believe several reasons. PayPal is a strange bird in that it isn’t necessarily an aggregator or a credit card processor or a bank. In some states it is legally one or another or all three. It acts as a hybrid of sorts coast to coast and in a few countries. And it would have continued as such if it had not been for two things: the enforcement of the Patriot Act and Ebay’s purchase of the company.

Every American should read the Patriot Act because it affects you directly. The purpose of the Patriot Act is to protect our nation from individuals and institutions that want to do us harm. One section of the Act is dedicated to money laundering. Credit cards are highly susceptible because an organization claiming to be a legitimate business or non-profit foundation could funnel millions of dollars right under the noses of the Feds. To crack down on this scheme the Treasury Department issued a press release on April 1, 2002. The press release was accompanied by a timeline and a set of rules. It outlawed aggregators which forced all adult merchants to provide detailed information about themselves and their businesses. These new rules also gave Visa and Mastercard instant access to the names and addresses of the adult merchant’s customers. So they (the Feds) know who the customers are, which sites they purchased from and in what amount.

As an aggregator PayPal had to comply with the new rules. And on November 1, 2002 began charging a non-refundable high risk adult merchant fee. All aggregators began charging the fee and as a result several amateur sites and phone sex services folded. Some adult merchants retaliated by circumventing the rules. In late December and through the first few months of this year news articles began appearing indicating that extreme sites, e.g., bestiality (did you know it was spelled that way… all this time I thought it was beastiality) and illegal sites, e.g., child porn, were processing memberships using PayPal. I’m sure the new owners, Ebay, did not want this kind of publicity nor the hefty fees associated with processing adult-related transactions. I understand one processor paid $6M in monthly fines to Mastercard.

We have a saying in the South – if you want to play with the big boys you have to run with the big dogs. PayPal is a wonderful program. However I do not believe that it was ready to handle adult products. Maybe in a couple of years they’ll come out with PayPal Adult or PayPal XXX. Today however using your PayPal account for adult related purchases including phone sex is a no-no.

If you are a merchant and are desperate enough to circumvent PayPal’s rules, then their legal department will eat you alive. And you could quite possibly lose everything. If you are a consumer and believe you can ignore this particular rule, then you should read the AUP carefully. The parent company states that it will share purchasing activity to any government agency without the need of a subpoena. It’s a different world my friends.

Read the fine print, know your rights, choose wisely and always, always respect the rules and guidelines of the organization providing you the service.

Hopefully this will put an end to the PayPal questions. If not hit me back on the feedback page and I’ll try again. Granted Paypal’s policy may change in the future. It never hurts to ask. So, go ahead and ask.